The average funding position and proportion of schemes in surplus are at their highest levels since the start of the current funding regime, according to Aon.
According to Aon’s report titled “Pension scheme funding – an analysis of complete valuations”, it currently takes 4.3 years on average for schemes in deficit to recover, which is 1.2 years less than it did three years ago when they were last examined. Schemes requiring a recovery plan also decreased from 67 per cent to 53 per cent.
The highest percentage of under-funded schemes to date, 63 per cent, had put in place additional security
Even though the majority of schemes have kept their funding stable, some, particularly those that are sensitive to changes in gilt yields, have performed better.
According to Aon, the “Mansion house reforms” proposed by the Chancellor could increase the endgame alternatives accessible to schemes and strengthen the case for endgames other than insurer buy-out.
Aon says: “This year’s analysis shows that the average funding position and proportion of schemes in surplus are at their highest levels since the start of the current funding regime. Since the dates of these completed valuations, while average funding levels have remained relatively stable, there has been a particularly wide variation in the changes to the funding positions of schemes. The funding positions of some schemes have improved significantly.
“Against this background, the new funding regime is currently expected to be implemented in April 2024, with its focus on a journey plan towards a long-term funding target, aiming to reduce reliance on the employer covenant and achieve ‘low dependency’ as a scheme matures.
“Ahead of this becoming a legislative requirement, the majority of schemes have already set such a target – and many have also produced a journey plan setting out how to get there – in line with regulatory guidance.
“In addition, the Chancellor announced several initiatives in his Mansion House speech in July, including a call for evidence on how DB schemes could use their assets more flexibly. The ‘Mansion House reforms’ may support a wider range of endgame options for pension schemes.”
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